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UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF FLORIDA
TAMPA DIVISION

MEMORANDUM OF THE UNITED STATES AND THE STATE
OF FLORIDA IN
SUPPORT OF THE MOTION AND STIPULATION FOR ENTRY OF ANENFORCEMENT ORDER

The Motion and Stipulation for Entry of an Enforcement Order filed today is the
result of
an investigation by the Antitrust Division of the United States Department of Justice (the
"Antitrust Division") and the State of Florida into allegations that Morton Plant Hospital
Association, Inc., formerly known as Morton Plant Health System, Inc. ("Morton Plant"), and the
Trustees of Mease Hospital, Inc. ("Mease") were violating the Final Consent Judgment ("FCJ")
entered by this Court on September 29, 1994. This investigation demonstrated that, starting
shortly after the entry of the FCJ and continuing for nearly the entire five years since, Morton
Plant and Mease violated the FCJ by coordinating the negotiation and sale of inpatient and
outpatient services, by using the partnership allowed by the FCJ to jointly sell services to
managed
care companies and others, and by failing to satisfy the requirements of the FCJ's compliance
program. These violations were serious, substantial, and repeated.

Morton Plant and Mease have now admitted these violations and have agreed to
entry of
the proposed Enforcement Order. See Motion and Stipulation for Entry of an
Enforcement Order
("Motion and Stipulation"), ¶ 1. That Enforcement Order imposes a penalty of nearly
$500,000
in costs and penalties, and requires that both Morton Plant and Mease take various affirmative
steps to prevent the recurrence of these violations. These steps include the sale of the
partnership's outpatient clinics, Mease's withdrawal from a local network of hospitals to which
Morton Plant belongs, allowing payers who may have been injured by these violations an
opportunity to terminate existing contracts, and the creation of a more rigorous compliance
program -- one that makes each hospital's chief administrative officer ("CAO") directly
responsible for the disclosure of any future violations. For these reasons, the plaintiffs request
that the Motion be granted and that this Court enter the proposed Enforcement Order.(1)

BACKGROUND

In 1994, Morton Plant, which operates Morton Plant Hospital, the largest and
most
prestigious general acute care hospital in northern Pinellas County, and Mease, which operates
two hospitals -- Mease-Dunedin and Mease-Countryside, together the second largest hospital in
the area -- announced their intention to merge. The Antitrust Division and the State of Florida
filed an action seeking to enjoin the transaction, and subsequently entered into the FCJ with the
parties prohibiting the merger, but allowing the parties to jointly operate certain patient and
non-patient services under specified conditions. The FCJ had a five year term, unless either
plaintiff, in
its sole discretion (but after consultation with the hospitals), extended it for an additional five
years. On September 28, 1999, the plaintiffs notified the Court that they had exercised their right
under the FCJ to extend the decree for another five years. It will now terminate on September
29,
2004.

While the FCJ prohibits the defendants from merging,
consolidating, or combining their
operations, except as otherwise expressly allowed, it permits Morton Plant and Mease to form a
"bona fide partnership" to consolidate, jointly operate, and sell to the respective hospitals at cost:
(i) certain patient care services, including outpatient and specific tertiary inpatient services;(2) and
(ii) certain administrative services, including human resources, housekeeping, medical records,
maintenance, information, and communications. FCJ at §§ V; II. All other services
are deemed
under the FCJ to be "Independent Services."

The FCJ further provides that while Morton Plant and Mease may form the
Partnership for
the purpose of providing such services, the two hospitals (i) "shall continue as separate and
competing corporate entities . . . and shall separately own and operate their respective
Independent Services"; and (ii) each hospital "shall [ ] price and sell its services, both those
owned and operated separately and those purchased from the Partnership, in active
competition
with each other." Id. at § VI(A) and (B) (emphasis added). The FCJ further
prohibits the
hospitals from discussing, communicating, or exchanging with each other (or any other hospital)
"information relating to the marketing, pricing, negotiating, or contracting of any patient care
service, including those purchased from the Partnership" (Id., emphasis
added); and requires that
the hospitals "negotiate and contract independently with health care purchasers such
as Managed
Care Plans." Id. at § VI(D) (emphasis added).

The FCJ specifically prohibits the executives and board members of the
Partnership from
discussing Independent Services, managed care contracting for Morton Plant or Mease, or the
pricing of the Partnership Services (with the exception of specified patient care services).
Id. at §
V(C). It also requires that the partnership establish adequate protections to keep information
regarding pricing, managed care contracts, negotiations with managed care plans, and marketing
and planning of Morton Plant and Mease separate, and to ensure that the information of one
hospital is not transmitted to or received by the other hospital directly or indirectly. Id. at
§ V(I).
Shortly after entry of the FCJ, Morton Plant and Mease created MPMHC as the "bona fide
partnership" permitted by the FCJ.

In March 1998, the hospitals requested that the plaintiffs join them in a request to
dissolve
the decree due to "significant changes" in the market, particularly the increased competition from
hospitals in Southern Pinellas County and throughout the Tampa area. More specifically, the
defendants argued that the basis for the plaintiffs' original concern -- that the hospitals competed
in a "northern Pinellas County" market where they had little competition and that they competed
"head-to-head" for managed care contracts -- no longer existed, and that a full merger of the two
hospitals would no longer have anticompetitive effects.

The plaintiffs investigated these claims and concluded that what changes had
occurred did
not warrant an early termination of the FCJ. Indeed, the plaintiffs concluded that the FCJ should
be extended for another five years. However, in the course of this investigation, the plaintiffs
also
discovered substantial evidence that Morton Plant and Mease had repeatedly violated the FCJ,
starting shortly after its entry in late 1994. At no time did Morton Plant, Mease or MPMHC
volunteer this information, though the evidence indicates that they were aware of the violations at
the time that they requested early termination of the FCJ.

ARGUMENT

Both ¶ X of the FCJ and the Court's inherent authority give it jurisdiction
for the
purposes, inter alia, of enforcing compliance and punishing violations of the FCJ's
provisions.
The proposed Enforcement Order does both, and its entry would be in the public interest.

I. VIOLATIONS OF THE FCJ

Morton Plant and Mease, separately, together, and in conjunction with MPMHC,
began to
violate the FCJ soon after the date it was entered by this Court. More specifically, they
repeatedly violated the provisions of the FCJ related to (i) the Partnership they were permitted to
create, (ii) the prohibitions on coordination by the two hospitals, and (iii) the compliance
requirements -- requirements intended to ensure that their activities comported with the FCJ's
various prohibitions.

Violations Relating to the Partnership

Paragraphs V(A)-(B) of the FCJ permit Morton Plant and Mease to create a
partnership to
produce outpatient, specified inpatient, and certain administrative services. With limited
exceptions, the Partnership is required to sell all such services to Morton Plant and Mease
exclusively, and the hospitals must then compete in the sale of these services to third parties,
such
as managed care plans. By requiring the Partnership to sell these services exclusively to Morton
Plant and Mease for subsequent resale to third parties, the FCJ sought to ensure continued
competition in the sale of these services despite their joint production.. Between 1994 and 2000,
however, MPMHC violated the FCJ by selling these outpatient services directly to managed care
plans and others, eliminating competition between the hospitals. Motion and
Stipulation, ¶ 1. a
(1).

Paragraph V(C) of the FCJ prohibits executives of the Partnership from discussing
(with
limited exceptions) managed care contracting or the marketing or pricing of any services for
Morton Plant or Mease. The defendants violated this provision during various meetings in which
MPMHC executives discussed managed care contracting with representatives of the hospitals.
At
several of these meetings, certain MPMHC executives gave identical instructions to each of the
hospitals on managed care contracting goals and objectives, thereby coordinating Morton Plant's
and Mease's managed care contracting activities in violation of the FCJ. Id. at
¶ 1. a (2)

Paragraph V(I) of the FCJ requires the Partnership to establish adequate
protections to
keep separate information concerning pricing, managed care contracts, negotiations with
managed
care plans, and marketing and planning of Morton Plant and Mease and to ensure that the
information of one hospital is not transmitted to or received by the other hospital, whether
directly
or indirectly. On various occasions, however, MPMHC personnel violated the FCJ by
transmitting information and recommendations on managed care contracting and pricing to both
hospitals and coordinating the sale of services to various managed care plans. Id. at
¶ 1. a (3).

Violations Relating to "Independent Activities" of the
Hospitals

Paragraph VI(A) of the FCJ requires Morton Plant and Mease to continue as
separate and
competing corporate entities, to market and price their services, as well as negotiate managed
care contracts, independently. The hospitals, however, used MPMHC to share competitively
sensitive information, coordinate managed care contracting decisions, and jointly sell certain
services, all in violation of the FCJ. Id. at ¶1. b (1).

Paragraph VI(B) of the FCJ requires Morton Plant and Mease to price and sell
their
services, including those services produced by the partnership, in active competition with each
other, and to independently market and price their services. With limited exceptions, they may
not discuss, communicate, or exchange with each other information relating to the marketing,
pricing, negotiating, or contracting of any patient or administrative services. However, the
hospitals violated the FCJ by taking direction from MPMHC regarding the marketing and pricing
of their services, by using MPMHC as a means of selling both inpatient and outpatient services
jointly, and by sharing contracting information with each other, as well as with other hospitals in
Pinellas County, through their participation in the BayCare Health Network, a local network of
hospitals. Id. at ¶ 1. b (2).

Paragraph VI(D) of the FCJ requires Morton Plant and Mease to negotiate and
contract
independently with health care purchasers, though they are permitted to contract with the same
purchasers and to enter into similar, but separate, contracts with these purchasers. However, on
various occasions Morton Plant and Mease violated the FCJ by simultaneously negotiating
identical contracts with the same managed care plans, using MPMHC to coordinate and obtain
identical provisions and rates. Id. at ¶ 1. b (3).

Violations Relating to the Compliance Program

Paragraph VII(C) of the FCJ requires Morton Plant and Mease to brief their
officers,
directors, trustees, and administrators annually on the meaning and requirements of the FCJ,
penalties for its violations, and their duties under the antitrust laws. Though the hospitals
provided some form of briefing at various points after the entry of the FCJ, such briefings were
perfunctory, and did not fully or adequately explain the requirements of the FCJ. Id.
at ¶ 1. c (1).

Paragraph VII(D) of the FCJ requires Morton Plant and Mease to obtain from
their
respective officers and administrators an annual certification that s/he has read, understood, and
agrees to abide by the FCJ and is not aware of any violations of this FCJ. While the hospitals
obtained a form of compliance certification from the relevant individuals, these certifications did
not always provide for the affirmation, required by the FCJ, that the individual was not aware of
any violations of the FCJ. Id. at ¶ 1. c (2).

Paragraph VIII(B) of the FCJ requires Morton Plant and Mease to certify annually
to the
plaintiffs that they have each complied with ¶ VII's Compliance Program. The hospitals
made
these certifications, but did so improperly insofar as (1) they did not obtain the proper
certifications from certain officers and administrators, and (2) they did not inform the plaintiffs
of
the violations they had discovered or reasonably should have discovered as early as 1996.
Id. at ¶
1. c (3).

II. THE PROPOSED ENFORCEMENT ORDER

The proposed Enforcement Order is designed to deter further violations of the FCJ
by (a)
penalizing those responsible; (b) changing the way Morton Plant, Mease, and MPMHC operate;
(c) requiring MPMHC to divest its outpatient clinics; and (d) imposing additional compliance
requirements. The proposed Enforcement Order will constitute a full and complete disposition of
the admitted violations of the FCJ, as outlined in ¶ 1 of the Motion and Stipulation for
Entry of an
Enforcement Order, barring further proceedings by the plaintiffs against Morton Plant, Mease, or
MPMHC based upon or arising out of (i) the admitted violations, or (ii) those violations
occurring
before the entry of this Enforcement Order that were not known -- and which were not reasonably
knowable -- by any current officer, director, trustee, administrator, or management employee of
Morton Plant, Mease, or MPMHC. Proposed Enforcement Order, § II. The proposed
Enforcement Order, however, does not limit the plaintiffs ability to prosecute any future
violations, or any previous violations known -- or reasonably knowable -- to Morton Plant,
Mease, or MPMHC that were not described in the Motion and Stipulation, nor does it affect the
rights or remedies available to others.

Civil Penalty

The proposed Enforcement Order requires Morton Plant and Mease to reimburse
the
United States and the State of Florida $96,000 and $100,000, respectively, for fees and costs
relating to the investigation. In addition, Morton Plant and Mease shall pay to the State of
Florida
(or its designee) a civil penalty of $300,000 to be used for the provision of indigent health care
service in the Pinellas County area. Of this amount, $150,000 will be provided to the State of
Florida for delivery to Greenwood Community Health Center, Inc.; $75,000 will be provided to
the State of Florida for delivery to the Homeless Emergency Project, Inc.; and $75,000 will be
provided to the State of Florida for delivery to the Clearwater Free Clinic.(3) Morton Plant and
Mease are prohibited from exerting any influence over the money's use. The names of Morton
Plant and/or Mease shall not be affiliated with the provision of health services which result from
the payment of this penalty, nor shall the penalty be a deductible expense for purpose of
calculating either Morton Plant's or Mease's taxes. Id. at § III.

Enforcement Provisions

The proposed Enforcement Order also requires significant changes in the structure
of
MPMHC and in the way Morton Plant and Mease conduct their business operations in order to
eliminate mechanisms by which the FCJ was violated. Thus, since Morton Plant and Mease
repeatedly violated the FCJ by misusing the "messenger model" for managed care contracting,(4)
the proposed Enforcement Order requires that they immediately cease the joint use of third-party
messengers for contracting with any payer, and that all contracting with payers shall be
conducted
independently, without any coordination or joint action. Id. at § IV. A.

Moreover, since the violations may have tainted the hospitals' current payer
contracts, the
proposed Enforcement Order requires Morton Plant and Mease to notify all payers with which
they contract of this proposed Enforcement Order and afford them an opportunity to terminate,
on 30 days notice, any such contracts entered into, renewed, or amended since September 29,
1994, which are still in effect. The only exception is for those contracts negotiated on behalf of
Morton Plant by BayCare Health System, Inc., as Mease is not a member. Id. at
§ IV. B.

In addition, Mease is required to terminate its membership in, and cease further
contracting with payers through, BayCare Health Network, the local network of hospitals to
which Morton Plant also belongs. Mease is also required to notify all payers with which it
contracts through BayCare Health Network of this proposed Enforcement Order and afford them
an opportunity to terminate, on 30 days notice, any such contracts which are still in effect.(5)Id. at
§ IV. C

Finally, in order to address the violations associated with MPMHC -- in particular
its
direct sale of outpatient services -- the proposed Enforcement Order requires that MPMHC
promptly divest its outpatient clinics, selling Eastlake Outpatient Center and Countryside Surgery
Center to Mease, and selling Bardmoor Imaging Center, Diagnostic Imaging Center, Trinity
Outpatient Center, Behavioral Health Management Services, Inc., The Harbor Behavioral Health
Care Institute, Inc., and those physician practices owned by the Partnership through Morton Plant
Mease Primary Care, Inc. to Morton Plant. Id. at § IV. E. In the future,
MPMHC may engage
only in those activities expressly allowed in ¶ V of the FCJ, must cease all sales of patient
care and
administrative services to any purchasers other than Morton Plant and Mease (except those
allowed under ¶¶ V(C) and II(A)(10) of the FCJ), and must take all other steps
necessary to fully
comply with the FCJ and the proposed Enforcement Order. Id.

Compliance Provisions

In addition to the structural and conduct changes described above, the proposed
Enforcement Order requires both Morton Plant and Mease to augment their existing compliance
programs and substantially increase their efforts to ensure compliance. Each hospital will be
required to create an internal Compliance Committee to oversee and coordinate each entity's
compliance with the FCJ and Enforcement Order, and to make the CAO of each hospital the
Chair of each such Compliance Committee. Each will be required by the proposed Enforcement
Order to create a written directive setting forth each hospital's policies regarding compliance with
the FCJ and the Enforcement Order, including the potential disciplinary actions the hospital shall
take in the event of a violation, and a description of the procedures to be followed to comply with
the FCJ and the Enforcement Order. Each will be required to distribute to each officer, director,
trustee, administrator, management employee, and anyone responsible for managed care
contracting for each hospital a copy of the FCJ, the Enforcement Order, and the written directive
setting forth the hospital's policies regarding compliance with the FCJ and the Enforcement
Order. Each will be required to inform, in writing, each officer, director, trustee, administrator,
management employee, and anyone responsible for managed care contracting for each hospital
that non-compliance with the FCJ or the proposed Enforcement Order shall result, in every
instance, in disciplinary action, which may include dismissal, and that non-compliance may also
result in conviction for contempt of court and imprisonment and/or fine. Id. at
§ V. (A)-(B).

The proposed Enforcement Order also requires that, within 30 days of the entry of
the
Enforcement Order, and annually thereafter, Morton Plant and Mease shall obtain from each
officer, director, trustee, administrator, management employee, and anyone responsible for
managed care contracting for each hospital a certification stating that s/he received, read, and
understands his or her obligations under the FCJ, the Enforcement Order, and the written
directive setting forth the hospital's policy regarding compliance with the Enforcement Order;
that
s/he has been advised and understands that non-compliance with the FCJ and/or the Enforcement
Order shall result, in every case, in disciplinary measures, which may include dismissal, and that
such non-compliance may also result in conviction for contempt of court and imprisonment
and/or
fine; and that s/he (a) is not aware of any violations of the FCJ or the Enforcement Order
occurring after entry of the Enforcement Order or of any past violations not admitted to in the
Motion and Stipulation for Entry of an Enforcement Order, or (b) promptly notified the
Compliance Committee of any violations of which s/he has become aware. Id. at
§ IV. C. All
such certifications shall be retained by Morton Plant or Mease, and be available for inspection
pursuant to ¶ IX of the FCJ. Id.

The proposed Enforcement Order also requires both Morton Plant and Mease
annually to
submit to this Court, with copies to the plaintiffs, certifications signed under oath by each
hospital's CAO that: (1) all steps required by the Enforcement Order and the FCJ have been
accomplished; (2) the Compliance Committee has made a reasonable, good faith effort to
investigate any suspected violations of the Enforcement Order or the FCJ of which it has become
aware; (3) s/he is not aware of, nor has been informed of, any violations of either the
Enforcement Order or the FCJ other than those admitted to in the Motion and Stipulation for
Entry of an Enforcement Order; and (4) each managed care contract entered into from the date of
entry of the Enforcement Order, except those negotiated through the Morton Plant Mease PHO
pursuant to ¶ IV. D of the proposed Enforcement Order, has been independently negotiated
and
priced, with no information shared between Morton Plant and Mease. Id. at §
V. G. Any
suspected violations are to be identified, and the nature of such suspected violations -- and any
investigation conducted by the hospitals -- are to be described in the Certification. Id.

The proposed Enforcement Order also requires the Compliance Committee of
each
hospital to create an internal audit work plan outlining how the compliance audits are to be
conducted and scheduling two internal compliance audits each year. Each Compliance
Committee
shall provide its work plan to the plaintiffs within 30 days of the entry of this proposed
Enforcement Order and shall execute the internal audits as scheduled. In addition, each
Compliance Committee shall file an affidavit summarizing the results of each audit with the
plaintiffs within 14 days of the completion of each audit. Id. at § V. E.

Finally, no later than 30 days after the entry of the proposed Enforcement Order,
Morton
Plant and Mease shall each modify the training of all officers, directors, trustees, administrators,
management employees, and anyone responsible for managed care contracting to include such
training as may be required by the FCJ, the proposed Enforcement Order, and the directives of
the
Compliance Committee. Id. at § V. F. In addition, within 30 days after entry
of the proposed
Enforcement Order, Morton Plant and Mease must provide each payer with which it has a
contract or with which it enters negotiations for a managed care contract a copy of the FCJ, the
Enforcement Order, and the hospital's written directive on compliance. Id. at
§ V. D.

Penalties for Future Violations

The proposed Enforcement Order further provides that if Morton Plant, Mease, or
MPMHC violate the FCJ or the proposed Enforcement Order, the Court may impose a financial
penalty in such amount as the Court deems reasonable, and that any such violation may be
established by a preponderance of the evidence after notice and hearing. The purpose of this
provision is to further deter violations of the FCJ and the proposed Enforcement Order by
making
clear that the Court may impose significant financial penalties based upon a showing that the FCJ
or the Enforcement Order was violated. Id. at § VI.

Modification or Termination of the Enforcement Order and
FCJ

The proposed Enforcement Order provides that, with one exception related to
intervening
changes in the law, Morton Plant and Mease may not seek to modify or terminate either this
Enforcement Order or the FCJ until three years after the date that the Motion and Stipulation for
Entry of an Enforcement Order is filed with the Court. Id. at § VIII. A. The
Enforcement Order
will otherwise terminate, along with the FCJ, on September 29, 2004.

Effect of Enforcement Order

The proposed Enforcement Order is intended to ensure Morton Plant's and
Mease's full
compliance with the FCJ and to make available civil penalties and other remedies for any future
violation of the FCJ or this Enforcement Order. It does not limit, modify, or affect Morton
Plant's or Mease's obligation to comply with all provisions of the FCJ. Consistent with that, the
monitoring and visitation provisions of ¶ IX of the FCJ shall apply to the activities of
Morton
Plant and Mease mandated under this Enforcement Order. Id. at §§ VII,
IX.

The proposed Enforcement Order also provides that jurisdiction is retained by this
Court
for the purpose of enabling any of the parties to the Enforcement Order to apply to this Court at
any time for further orders and directions as may be necessary or appropriate to carry out or
construe it, to enforce compliance with it, and to punish of any violations of it. Id. at
§ X.

CONCLUSION

Although Morton Plant and Mease have repeatedly violated the FCJ, the United
States
and the State of Florida believe that the proposed Enforcement Order will make future violations
less likely by making them more difficult to perform, easier to detect, and, once detected, more
costly for the hospitals and their administrators. For that reason, the United States and the State
of Florida request that this Court grant the Motion and enter the proposed Enforcement Order.

1. Pending entry of the proposed Enforcement Order, Morton
Plant, Mease, and Morton
Plant Mease Healthcare ("MPMHC") have agreed to be bound by its terms (except as otherwise
provided). See Motion and Stipulation, ¶ 3. In the event that this Court
declines to enter the
proposed Enforcement Order, the proposed Enforcement Order shall be of no effect and the
Motion and Stipulation shall be without prejudice to any party in this or any other proceeding.
Id.
at ¶ 4.

3. The United States believes it is appropriate to allow its
co-plaintiff, the State of Florida,
to receive the entire amount of a civil penalty where the state has an independent claim to the
damages and where the United States has not incurred any monetary loss in connection with the
offending conduct. 4B U.S. Op. Off. Legal Counsel 684, 1980 WL 20970 (O.L.C.). In addition,
in this instance, because the parties violating the decree are locally-based non-profit institutions
and because the harm caused by the violations was local, the United States did not insist on a
separate penalty. By deferring to the State of Florida in this instance, the United States believes
that those most likely harmed by the violations will receive some restitution.

4. The Statements of Antitrust Enforcement Policy in Health
Care, issued by the
Department of Justice and the Federal Trade Commission in August, 1996, state that "messenger
model arrangements" -- arrangements, for example, where the agent or third party conveys to the
providers "all contract offers made by purchasers, and each provider then makes an independent,
unilateral decision to accept or reject the contract offers" -- are not per se illegal
price fixing
where they do not result in a collective determination of prices or price-related terms. See
Statement 9(C). Under the Policy Statements "the key issue is . . . whether the
arrangement
creates or facilitates an agreement among competitors on price or price-related terms." Id.
Lawful messenger arrangements facilitate contracting between providers and payers but do
not
result in agreements among competing providers on prices or price-related terms.

5. Morton Plant and Mease may, however, negotiate and
contract with payers on a non-exclusive basis through the Morton Plant Mease PHO pursuant to
the provisions of ¶ V(G) of the
FCJ, provided that all such contracts shall be for both hospital and physician services and involve
substantial risk sharing among participating physicians and hospitals, and provided further that
any
information provided to the PHO by one of the hospitals shall not be disclosed to the other
hospital. Id. at § IV. D.